The value relevance of earnings and cash flows: the Tunisian stock market evidence

Jaouida Elleuch Trabelsi

International Journal of Accounting and Finance, 2013, vol. 4, issue 1, 98-117

Abstract: This study examines the value-relevance of three performance measures: earnings, cash flows from operations (CFO) and funds flows from operations (FFO). It addresses three questions. First, do accounting earnings and cash flows data have information content? Second, does accounting earnings (cash flows) have incremental information content over cash flows (earnings)? Third, does the incremental information content of cash flows (earnings) increases (decreases) with a decrease in the permanence of earnings? The empirical findings are consistent with: 1) all three performance measures having explanatory power for returns individually and earnings performing better than cash flows in explaining security price variation; 2) earnings having incremental information content beyond CFO and FFO; 3) CFO having incremental information content beyond earnings; 4) FFO having no incremental information content over earnings. Results do not however support any increase in the incremental information content of cash flows when earnings are fundamentally transitory.

Keywords: security returns; accounting earnings; cash flows; value relevance; Tunisia; stock markets; fund flows; performance measures; security price variation; incremental information content. (search for similar items in EconPapers)
Date: 2013
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